1. Renegade Sports have issued 5 year bonds to raise capital for expansion into new markets. The bonds pay coupons annually at an effective annual rate of 10% pa. The face amount of the bonds is $105,000 and they have an effective annual yield of 4% pa. Calculate the duration (D) of the Renegade bonds. Give your answer in years to 2 decimal places.

D = ......years

2. A portfolio consists of the following two investments: - a bond with face value of $100.00 paying annual coupons of 5% maturing in 5 years - an annuity with payments of $60.00 at the end of each year for 5 years The portfolio is comprised of 59% bonds and 41% annuities. The term structure is flat and the current yield is 10% pa effective. Calculate the duration (D) of the portfolio. Give your answer to 2 decimal places.

D =...... years

3. Your colleague is constructing a table to calculate the duration of 5 year annual coupon paying bonds issued by American Expresso at an effective annual yield of 6% pa. The bonds have a face value of $160,000 and an effective annual coupon rate of 13% pa. Unfortunately your colleague is unwell and has taken the day off work. You have been asked to complete the calculations to present at a meeting.

a) Complete the table for your colleague. Give your answers to 4 decimal places.

Cash flow	Amount ($)	Present value of the cash flow (PVCF)	Weight (PVCF/price)
1	20,800	19,622.6415	0.0947
2	20,800	18,511.9260	0.0894
3	20,800	17,464.0811	0.0843
4	20,800	16,475.5482	0.0795
5

b) Calculate the duration (D) of the American Expresso bonds using the rounded values in the table. Give your answer in years to 2 decimal places.

D = ....years

c) If the yield were to decrease immediately, the duration of the bonds would: - increase? - decrease? - remain unchanged?